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ECO401 Assignment No.1 solution Due Date June 03, 2022.
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QUESTION
BigPharma is one of the leading industry providing medicines in all over the world. This industry spends a massive amount on research and development in the field of medicine. Revenue of this industry was estimated at 610 billion Dollars in 2021. Most of the drugs of BigPharma are patented. Recently BigPharma introduced the ViraBloc drug which is very effective for the new corona-virus variant Theta. This industry has decided not to patent this drug. This act will be useful for the consumers because in this way, more producers can produce this drug which will be good for consumers. The International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), also known as trade association for the innovative biopharmaceutical industry, assured that by the end of 2022, enough vaccinations would be available to immunize everyone. They predicted that supply would likely to exceed demand.
Suppose Demand function of this industry is given as follows:
𝑸𝒅= 𝟕𝟓−𝟐𝟎𝑷+𝟐𝑷^𝟐
Where ‘P’ is the price in dollars and ‘Qd’ is quantity demanded.
Requirements:
a) Calculate price elasticity of demand when price is 4 dollars. Also, interpret the result.
b) Calculate total revenue of the industry by using above information in part (a).
c) If price elasticity of demand of ViraBloc becomes -15/14 then how this will affect the price of ViraBloc?